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How about an "80 percent NIV -- Purchase or Refinance; No Asset"? Or, like many borrowers, do you have no idea what these words and numbers from a recent advertisement in the New York Mortgage Press mean?

Chances are all three might apply. That's why more consumers than ever before are going to mortgage brokers, rather than community banks or online lenders, when looking for loans, experts say. With brokers, they can shop among tens or even hundreds of mortgages, with cryptic requirements such as those listed, to find one that fits just right.

"The customer very often
is very poorly informed and doesn't understand what it is, exactly, he is buying."
Jack Guttentag, The Mortgage Professor

Unregulated

At the same time, consumers will want to take extra care when they shop. Unlike banks or thrifts, mortgage brokers aren't directly regulated by any federal agency. Because it doesn't take much to get into the business either, the number of brokers out there has soared in recent years, too. That means plenty of unscrupulous or just plain incompetent people are out there right now looking for business -- and unsuspecting shoppers -- in a strip mall near you.

"Regulation is not very extensive. Some states, they aren't regulated at all. In most states, the regulation is weak," says Jack Guttentag, a lending industry consultant and syndicated columnist who runs the Mortgage Professor Web site. "But pretty much, mortgage brokers are allowed to do their own thing."

Unfortunately, " 'Their own thing' oftentimes involves a lot of questionable practices," he adds. "It's a very imperfect market out there. The customer very often is very poorly informed and doesn't understand what it is, exactly, he is buying. There are all kinds of opportunities for mortgage brokers to rip them off."

For years, consumers and companies alike have lamented the complexity of mortgage transactions. The paperwork involved ties up several days', or even weeks', worth of time and the whole transaction can fall apart if everything doesn't come together by closing.

At the same time, life can be even tougher for customers who want someone they can reach on the phone quickly or who need specialized purchase or refinancing assistance.

Brokers increasingly popular That's why brokers can be a big help -- and part of the reason why they're so popular right now. In fact, a study released in June estimates the number of independent mortgage brokerages soared to about 36,000 at the end of 1998 from 7,000 a little more than a decade ago. Those brokers, in turn, handled 70 percent of the estimated $1.7 trillion worth of mortgages originated last year, up from 20 percent in 1987, according to the industry research firm Wholesale Access of Columbia, Md.

What's the attraction? Brokers get money from wholesale lenders, add a few hundred dollars for their work, and "sell" it to home shoppers in much the same way Sears buys power drills from Black & Decker, marks them up and sells them to shoppers at the mall. Because they can choose from so many wholesale lenders who, in turn, have several specialized programs each, they can often find mortgages that match particular needs.

Say someone wanted to get a loan to buy a home that would be for 80 percent of the property's value, but didn't want to verify employment income (NIV) or brokerage and bank account assets (No Asset). Then imagine there is another person who wants to refinance an existing single-family (1-4 Family) home mortgage and make it larger to get some equity out as cash (Cash Out). The loan in this hypothetical example is against a house that isn't the primary residence (N/O/O, or not owner-occupied), but the borrower doesn't mind fully verifying income (FIV).

A bank might not be willing to loan any money. That's because it couldn't prove the first person would be able to pay that loan back and because it might be leery of allowing the other borrower to take out a larger loan against a second home because those mortgages are considered riskier. But a broker who had seen the ad above and the two programs described in it would know that American Brokers Conduit of New York was a lender that had no problem with waiving those requirements. As a result, both deals would most likely get done.

"If they go to a local bank, they're going to be offered that bank's programs and that's it. If they come to me, they're going to be offered a whole array of different institutions' products," says Patty McGill, a broker who owns Money Marketing Inc. in Frederick, Md. "It's amazing, the different scenarios these programs offer, and each individual is going to fit into one of them. But if I only offered one, some people would fit, but some of them wouldn't."

Advantages, disadvantages

Home buyers looking for construction/permanent hybrid mortgages or those with credit problems make good broker candidates. The same holds true for people who want to purchase second homes or property they plan to rent out, as well as current mortgage holders who want to refinance in order to take some equity out as cash at high loan-to-value ratios.

Still, shopping with a broker means accepting the fact that Megabank USA isn't standing behind your mortgage. In many cases, the broker doesn't even technically originate and fund the loan; the wholesale lender does. That lender may sell the loan to a separate company that services mortgages by collecting payments and performing other tasks, which, in turn, may sell it again. Though banks and thrifts do this as well, many are portfolio lenders that keep the mortgages they originate on their books.

Banks sometimes cut deals with people who have done a lot of business with them, too, so there are ancillary benefits to going to one for a home loan. Community Savings Bankshares Inc. of North Palm Beach, Fla., has a special checking account called Mortgage Plus, for example, that features free online banking, special certificate of deposit rates and other perks.

"You have two kinds of entities out there, in a sense: mortgage brokers who offer products of multiple firms and loan officers who offer products of one firm," says Guttentag. "The loan officer's advantage is that he may have a recognizable identity for the borrower.

"The advantage of the mortgage broker is that he has contact with 30-plus lenders and he's in a position then to scour the market for the best deal. He's also in a position to get loans in market niches that single lenders might not cover," he adds. But "the weakness of a mortgage is that there's no identity. People go to mortgage brokers at their hazard."

Know your broker That means consumers who do so need to make sure they know who's sitting across the table from them. Some states have no educational or professional requirements to become a broker, while others mandate that potential businessmen attend mortgage classes and pass written tests proving their competence. Depending on where you live, that can make it all the more important to seek out referrals from friends. People who want to be extra cautious can check with their state regulatory offices, because many keep blacklists of individuals and businesses who have been censured in the past.

"The public is more vulnerable if the consumer has not done his due diligence in selecting the broker with whom he chooses to work," says McGill. "The very best way to get hooked up with a broker who will provide an excellent service is to ask your friends and colleagues, 'Have you worked with a broker? If so, who was he or she?'

"If 70 percent of the people are getting their loans through a broker today, then an awful lot of your friends and mine have worked with a broker," she adds. "If they choose to, they can always call the licensing bureau in the state."

As for other cautions, most of them fit the bill whether a consumer chooses a lender, broker or mortgage company Web site. Know the product inside and out, especially if it's a niche loan that's more complicated than a standard 30-year fixed mortgage. After selecting a mortgage, assiduously compare the rates, points and costs that a couple of brokers charge for it.

"When people ask me, 'Should I go to a mortgage broker or a lender?' the stock answer is, 'You can do a lot better at a mortgage broker, but you can also do a lot worse,' " says Guttentag. "What people have to be warned about, even the people with those complicated problems, is that they need to shop."

5 steps for dealing with a mortgage broker

Follow these guidelines to track down a reputable mortgage broker.

1. Get a description in writing of the exact program being offered. Because many people who go to brokers are getting specialized mortgages that may not be as straightforward as 30-year fixed-rate loans, it's especially important to know what you want and know if that's what you're being offered. That way, you can compare rates, fees and points on an apples-to-apples basis.

2. Make sure you get a detailed good-faith estimate and check that against your final bill before closing. Brokers are sometimes paid by both the lenders who underwrite the mortgages and the consumers who get them, and it's important to look at the documents to make sure the broker isn't getting paid too much or double-charging you.

3. Rate locks from a broker can be a big trip-up if you're not careful. Get proof in the form of a signed document that the lock has been executed if that's what you want to do. Keep in mind this usually has to take place during business hours for the lock to be effective that day. Missed faxes or other snafus can delay the transaction and leave you with a higher rate if you're not on top of things.

4. Think referral, referral, referral when it's time to find a broker. It's good to have a broker who's nice; it's better to get rates and costs that are reasonable.

5. Consider checking to see if your broker or mortgage brokerage has faced state regulatory sanctions in the past. Most states maintain some kind of list of people and companies who have been fined or had their licenses revoked.

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